On 1 July 2020, Cloudy Ltd acquired all of the shares of Sunhill Ltd, on a cum-div. basis, for $5,850,000. At this date, the financial statements of Sunhill Ltd showed the following balances:

Share capital 500 000 shares $2,500,000

General reserve $850,000 Retained earnings $1,450,000

Revaluation surplus $280,000

Dividend payable $85,000

At acquisition date, all the identifiable assets and liabilities of Sunhill Ltd were recorded at amounts equal to fair value except for the following:

Carrying amount Fair value

Inventory $265,000 $325,000 Land $950,000 $1,220,000 Plant (cost $900 000) $540,000 $680,000

The dividend payable at acquisition date was subsequently paid in August 2020. The inventory on hand in Sunhill Ltd at 1 July 2020 was sold in August 2020. In May 2022, the land was sold to Sunnyside Ltd for $1,450,000. The plant was estimated to have a further five-year life with no residual value. Goodwill was impaired by $40,000 at 30 June 2021. The tax rate is 30%.

During the period 1 July 2020 to 30 June 2022, the following intragroup transactions have occurred between Cloudy Ltd and Sunhill Ltd:

(T1) At 30 June 2022, Cloudy Ltd approved and declared a final dividend of $90,000, and Sunhill Ltd declared and approved a final dividend of $75,000. These dividends were paid on 31 July 2022.

(T2) From February 2021 to June 2021, Cloudy Ltd provided management services to Sunhill Ltd for $70,000. Sunhill Ltd paid $50,000 of this balance in May 2021, and the remaining $20,000 was paid in August 2021.

(T3) In May 2021, Cloudy Ltd sold inventory to Sunhill Ltd for $73,000. Cloudy Ltd had previously purchased the inventory for $49,000. By 30 June 2021, Sunhill Ltd had sold one-quarter of this inventory to Billow Ltd for $28,000.

(T4) On 1 July 2020, Sunhill Ltd sold equipment to Cloudy Ltd for $120,000. The equipment had been purchased by Sunhill Ltd on the same day for $100,000. Equipment has a further five-year life, with zero residual value, and is depreciated on a straight-line basis.

(T5) On 30 November 2021, Sunhill Ltd sold inventory to Cloudy Ltd for $56,000. The inventory had previously cost Sunhill Ltd $48,000. The inventory remained unsold by Cloudy Ltd at 30 June 2022.

a) Prepare the acquisition analysis at 1 July 2020. (9 marks)

b) Prepare the consolidation journal entries at 1 July 2020. All workings and narrations must be provided. (15 marks)

c) Prepare the consolidation journal entries at 30 June 2021. All workings and narrations must be provided. (27 marks)

d) Prepare the consolidation journal entries at 30 June 2022. All workings and narrations must be provided. (32 marks)

e) Referring to your journal entries for Part d), explain the adjustment(s) required for T5 (inventory), noting the adjustment to each account separately. (12 marks)

Should be typed with all narrations, workings, and intragroup adjustments correctly labelled as T1 T5. (5 marks)